This week was shorter because of Monday Labor day in the US. The week was positive with indexes in gain even if volumes dropped at the end. As we can see in the S&P500 chart, volume decreased progressively over the week. We had 3 positive day and 1 negative, with low volume decreasing in this latter, therefore so far we don’t see imminent bear signals. Have a look to accum/distrib index, it shows a very strong positive divergence. According to this index, investors have been accumulating stocks since July and this is a strong positive signal. Based on the decreasing volumes of last week, we could have some weak days next week, but if volumes won’t be high in negative days, it would be another very good signal. Personally I see a strong buy if S&P500 rises above 1130 with volume where we’ll have a weekly bull head&shoulder. Similar pattern occurs on other major indexes as well.
That this week wasn’t ready for a strong rally was evident in the attitude of euroyen that dropped close to the lowest level of the year. I continue to believe that if we ‘ll have a strong rally on stocks, we should see the cross moving above the resistance showed in the chart, approximately at 109,60.
In this scenario where stock market seems to recover, is good to build a list of stocks with high growth potential and try some selective pilots buy. As I wrote over the week I tried to enter in GMCR (Green Mountains Coffee Roasters). As you can see in the chart it broke above 34, but I hadn’t an automatic order on it and didn't buy at that level. The first attempt's day it went above but then close below. The day after it opened above again, I saw high volumes and opened a pilot at 34.35. Rose quickly up to 35. This is a company with stable earnings, positive last quarters results. At the end of the day I looked at the chart and I didn’t like at all. The first thing I didn’t like was that with this strong increase of volumes, I would have expected a close near the high range…instead it closed in the middle. And the day after with market positive it opened without conviction and volumes, so I sold it 10 cents below my purchase price. If you have a look at times in the past when it broke successfully recent highs (black arrows) it always built a long white candle. Only close to old august top it created a candle “mixed” and then fell days later. I sold because I fear the same could happen, a false break-up. Of course, if this week market breaks the resistance level and creates a H&S, GMCR will rise and I’ll complain with myself
I studied in the week end other 2 stocks: SHOO and EBIX. I’ll decide this week if buy SHOO even before the eventual high breakup (above 40) because it has a positive divergence on accum/distrib index and hold the moving average 10 weeks. I also have an automatic buy on BBD above the recent high. I am sick for SRCL that I missed…no automatic order and I wasn’t able to catch it.
Disclosure: opened and closed GMCR